Kirby Corporation 2016 Form 10-K Summary
Business context and reporting period
Kirby Corporation filed its Form 10-K for the fiscal year ended December 31, 2016. The company operates two reportable segments: marine transportation, primarily domestic tank-barge transportation of bulk liquid products, and diesel engine services, including engine overhaul, parts distribution and oilfield-service equipment manufacturing.
Marine transportation generated 83% of 2016 revenue and diesel engine services generated 17%. The filing also reports fourth-quarter 2016 results.
Financial performance and key metrics
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Revenue | $1.771 billion | $2.148 billion | Down 18% |
| Operating income | $245.2 million | $380.7 million | Down 36% |
| Operating margin | 13.8% | 17.7% | Down 3.9 points |
| Net earnings attributable to Kirby | $141.4 million | $226.7 million | Down 38% |
| Diluted EPS | $2.62 | $4.11 | Down 36% |
| Net margin | 8.0% | 10.6% | Down 2.6 points |
| Operating cash flow | $414.0 million | $521.3 million | Down 21% |
| Capital expenditures | $231.1 million | $345.5 million | Down 33% |
- Marine transportation revenue was $1.472 billion, down 11%; operating income was $257.1 million, down 31%; and operating margin declined to 17.5% from 22.5%.
- Diesel engine services revenue was $298.8 million, down 38%; operating income was $3.2 million, down 83%; and operating margin declined to 1.1% from 3.9%.
- Fourth-quarter revenue was $435.7 million, operating income was $56.8 million, net earnings attributable to Kirby were $32.4 million, and diluted EPS was $0.60.
- At December 31, 2016, total assets were $4.303 billion and total equity was $2.413 billion.
- Cash and cash equivalents were $5.6 million. Debt, including current portion and before unamortized issuance costs, was $726.0 million, consisting of $226.0 million drawn on the revolving facility and $500.0 million of senior notes.
- Debt-to-capitalization was 23.1%, down from 25.4% in 2015. The company reported compliance with all debt covenants.
Material changes versus the prior comparable period
- Marine results weakened because of lower inland and coastal utilization, lower contract pricing, increased coastal spot-market exposure and idle time, and higher depreciation. Inland term-contract renewals declined approximately 5% to 9% on average.
- Inland utilization declined from approximately 90% to 95% during 2015 to the high-80% range at year-end 2016, while coastal utilization declined to approximately the low-80% range in the fourth quarter.
- Lower diesel fuel prices reduced reported marine revenue because fuel costs are largely passed through to customers; the average inland diesel price declined to $1.46 per gallon from $1.92.
- Diesel engine services were materially affected by the collapse in demand for pressure-pumping equipment, lower oilfield activity and deferred marine maintenance projects. The power-generation market remained relatively stable.
- The company acquired the Seacor inland fleet for approximately $89.2 million, four coastal tugboats for $26.5 million, a previously leased coastal tank barge for $13.7 million, and the VPS EMD engine business for $11.4 million.
- 2016 included $5.6 million of pretax severance charges, including $3.8 million in marine transportation and $1.4 million in diesel engine services. The company also recognized a $4.9 million civil penalty under a Clean Water Act consent decree related to a prior marine collision and fuel discharge.
Guidance, outlook, risks and unusual items
- Management projected 2017 capital expenditures of $165 million to $185 million, funded primarily through operating cash flow and available credit.
- Management expected inland tank-barge utilization of approximately the mid-80% to low-90% range in 2017, with potential modest pricing improvement in the second half if supply and demand balance.
- Coastal utilization was expected to remain weaker, in the high-70% to low-80% range, as the market absorbs additional capacity and reduced crude-oil and condensate movements.
- Management expected strong demand for pressure-pumping-unit remanufacturing in 2017, but only a small number of new pressure-pumping-unit orders. Gulf of Mexico marine oilfield services were expected to remain weak, while power generation was expected to remain stable.
- Key risks include tank-barge oversupply, commodity and energy-price volatility, customer contract nonrenewals, adverse weather and water conditions, aging inland-waterway infrastructure, marine accidents and environmental liabilities, Jones Act changes, regulatory compliance costs, labor availability, cybersecurity, shipyard delays and weakness in oilfield markets.
- Contingencies include CERCLA matters at the Portland Harbor, U.S. Oil Recovery and SBA Shipyard sites; the October 2016 Nathan E. Stewart grounding and fuel spill; and remaining crew-member claims related to the 2014 M/V Miss Susan collision. Management stated that reserves and insurance coverage were adequate and did not expect a material adverse effect.
- The company’s pension plan was funded at 94% of accumulated benefit obligation at year-end, and no pension contribution was made for 2016.
Most important facts for investors to verify
- Whether marine utilization and contract pricing stabilize or continue to decline, particularly in the coastal fleet.
- The pace of retirement and delivery of competing tank barges and the resulting industry supply-demand balance.
- Recovery in pressure-pumping remanufacturing and oilfield-service activity, including the sustainability of improved 2017 demand.
- Progress on 2017 vessel construction commitments and whether projected capital expenditures remain within the $165 million to $185 million range.
- Available revolver capacity, covenant compliance and refinancing requirements for the $150 million Series A notes due in 2020 and $350 million Series B notes due in 2023.
- Insurance recoveries, reserves and ultimate exposure from environmental claims, marine incidents and CERCLA proceedings.
- Changes in pension funding requirements, environmental regulations, ballast-water requirements and other regulatory capital obligations.